Chubb’s reinsurance business will be moving to Bermuda in a three-way transaction. The Chubb Corporation and the investment firm Stone Point Capital LLC announced the formation of Harbor Point Limited, a global reinsurance company to be based in Bermuda. Once that is successfully launched, it will acquire the ongoing business of Chubb Re, Inc., a Chubb subsidiary, including the renewal rights to Chubb Re’s in-force book of business.
Chubb noted that Harbor Point would not assume any reinsurance liabilities relating to reinsurance contracts incepting prior to December 31, 2005. “Chubb will retain those liabilities and the related assets and reserves,” said the bulletin.
“Harbor Point is expected to have an initial capitalization of approximately $1.5 billion and is expected to commence underwriting in Bermuda upon receipt of regulatory approval for its Bermuda reinsurance subsidiary, Harbor Point Re Limited,” the announcement continued. “Trident III, L.P., a private equity fund [set up by MMC Capital] managed by Stone Point Capital, and The Chubb Corporation are the lead investors in Harbor Point.”
The transaction also calls for Harbor Point to pay Chubb $200 million in the form of a five year 6 percent convertible note and warrants, “representing in the aggregate on a fully converted and fully diluted basis 16.25 percent of the new company. Trident III has agreed to invest $200 million in the new company. The management team of Harbor Point also is expected to have a meaningful investment in the company. Going forward, it is expected that Harbor Point will write a diverse portfolio of both property and casualty reinsurance products.”
John Berger will head the new company as President and CEO. He has 28 years of experience in the reinsurance industry and has served as President and CEO of Chubb Re since 1998. Prior to joining Chubb Re, he served as President and CEO of F&G Re from 1996 to 1998. Stephen Friedman, a Senior Advisor to Stone Point, and a former Chairman of investment bank Goldman, Sachs & Co., will serve as non-executive Chairman of Harbor Point.
Chubb noted: “Other than pursuant to certain arrangements to be entered into with Harbor Point, Chubb Re will no longer engage directly in the assumed reinsurance business. Harbor Point will have the right for a transition period to have Chubb front certain reinsurance business in cases where Harbor Point is unable to underwrite that business because of the absence of necessary regulatory licenses or approvals. Any reinsurance policies issued by Chubb under this fronting arrangement during this transition period will be ceded to Harbor Point under quota share reinsurance agreements to be entered into by the parties, with Chubb retaining a limited portion thereof.”
Commenting on the decision, John D. Finnegan, Chubb’s Chairman, President and CEO indicated: “It’s clear there are dislocations in the reinsurance marketplace as a result of recent catastrophe experience, among other issues. This transaction offers Chubb an outstanding opportunity to leverage its position in that marketplace in a way that should achieve the greatest opportunity for significant upside capital appreciation.”
“We are delighted to be partnering with John Berger and his team,” stated Charles A. Davis, CEO of Stone Point. “A number of our previous ventures, including ACE, XL, Mid Ocean and AXIS, have addressed supply and demand imbalances in the insurance and reinsurance markets. Harbor Point is in the tradition of these previous investments. We have enjoyed a long and close relationship with Chubb and are delighted to be working with them in forming Harbor Point.”
“We are excited about this next step in the development of our business,” Berger stated. “The team at Chubb Re has received great support from Chubb over the past seven years, and we believe this transaction is an optimal way to maximize the potential of this business both for Chubb and for our other stakeholders.”
The closing of the transaction is subject to the condition that $1.1 billion be raised from investors, other than Chubb and Trident III, and certain customary closing conditions. It is expected that the closing will occur by the end of November and that Harbor Point will then commence underwriting upon receipt of necessary regulatory approvals
The bulletin also noted: “Harbor Point Re has filed a business plan with regulators in Bermuda and hopes to receive approval to operate as a Class 4 reinsurer [the highest category] in Bermuda, after which the company expects to approach A.M. Best and Standard & Poor’s for ratings. Harbor Point also expects to have a subsidiary based in Bernardsville, New Jersey.”
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